New Stream Fund Executives Charged With Securities Fraud

By Robert Dixon

InsuranceNewsNet

The U.S. Securities and Exchange Commission and the U.S. Attorney in Hartford, Conn., have charged three former executives of a Connecticut hedge fund with numerous counts of fraud in a failed life insurance investment scheme, according to news reports.

Executives of the now-defunct New Stream Capital were charged with fraud after they lied to investors in an attempt to keep a major investor from pulling out of the fund, Bloomberg reported.

David Bryson, 44, and Richard Pereira, 40, both of Ridgefield, Conn., and Bart Gutekunst, 61, of Weston, Conn., pleaded not guilty to charges of conspiracy, securities fraud and wire fraud in federal court in Hartford on Feb. 26, according to a release by U.S. Attorney David Fein.

“Fearing the loss of their fund’s largest investor, these defendants orchestrated a scheme to deceive investors in order to obtain and maintain investments,” Fein said in the release.

New Stream introduced new feeder funds in November 2007, some based in the Cayman Islands, according to the prosecutor’s statement. Investors were told they would have to move their money from a Bermuda-based fund, which was closing, to the Cayman funds.

However New Stream’s largest investor, who was not identified by prosecutors, planned to redeem its investment. The company schemed to secretly keep the Bermuda fund open to reverse the redemption without telling its other investors, prosecutors said.

The defendants used deceptive marketing materials to hide the existence of the Bermuda fund, according to the statement. New Stream, which is currently in bankruptcy, had its liquidation plan approved by the U.S. Bankruptcy Court in Delaware in April. The plan called for investors to recover between 7 percent and 19 percent of their original investments, Bloomberg reported.

The hedge fund specialized in “non-traded private debt,” which consisted primarily of a portfolio of life-insurance policies, the news agency said.

Bryson and Gutekunst were released on $5 million bonds, Pereira on a $300,000 bond. If convicted, they could receive up to 20 years in prison on each of 10 counts of securities fraud and eight counts of wire fraud. The one count of conspiracy carries a five-year maximum sentence.

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